PWC Slide Deck Final
- 1. PWC Case Competition 2016
- 2. Current Greenlight Tires Situation Initially, we evaluated the overall company outlook and forthcoming difficulties. Situation Challenge Greenlight Tires is a large growing tire company Greenlight has developed a negative public image due to tire pollution in the protected wetlands of Louisiana Improve Greenlight’s Company Image Embed Commitment to Environment into Culture Determine Best Strategic Alternative to Greenlight
- 3. Our Solution We recommend that Greenlight purchase RubberUp’s assets to create an immediate revenue-producing subsidiary to use as an internal tire disposal resource. We also recommend the acquisition payment be divided up into even annual payouts over four years to RubberUp.
- 4. Our Team Our team comes from diverse backgrounds, from California to Italy. Tyler Nevins Finance Sophomore Tulsa, OK Natalie Kaiserman Accounting Sophomore South Jordan, UT Andy Rebarchik Accounting Sophomore Milwaukee, WI Roberto Mongia Accounting Sophomore Verona, Italy Grant Hiltbrand Accounting Freshman Mission Viejo, CA
- 5. Our Process We created a four-step process to present our solution. Market Research Strategic Alternatives Implementation Process Company Impact
- 6. Competitive Landscape We performed market research as an attempt to laser in on the possible solutions. Market Research Strategic Alternatives Implementation Process Company Impact ● Crumb Rubber ○ Weightlifting Plates ○ Portable Speed Bumps ○ Anti-Fatigue Mats ○ Sports fields ● TDF - Tire Derived Fuels ○ More Energy than Coal ○ Cleaner than Fossil Fuels ● Asphalt ○ 15-22% of the Mix for Rubberized Asphalt ○ Can be Installed with the Same Equipment ○ Reduces Tire Noise ● Rubber Mulch ○ 12 Year vs. Annual ○ Added Safety ● Aggregate ○ 10x Drainage of Soil ○ 8x Insulation of Stone ● Retreading More Than 2500 Companies make up the tire recycling industry
- 7. Competitive Landscape The biggest potential lies within playground surfaces, the most profitable sector, but the market is changing. Market Research Strategic Alternatives Implementation Process Company Impact Today2013 Expected Annual Revenue Growth 3.6%
- 8. Problem Structure How can Greenlight Tires restore public image and embed environmental concern into the company culture? Purchase a recycling company Build infrastructure for internal recycling company Other Options Purchase RubberUp, Inc. Purchase different company Create an internal process for recycling Create an internal recycling revenue stream One-time charitable act Use recycling company as a vendor In order to reach our recommendation, we explored all possible solutions to the problem. Market Research Strategic Alternatives Implementation Process Company Impact
- 9. Key Considerations In our research, we identified key factors of success for Greenlight Tires going forward Market Research Strategic Alternatives Implementation Process Company Impact Considerations for Potential Solutions Will our solution solve the current image issue the company faces? Does our solution fit with the company mission statement? What are the associated opportunities and threats for our proposed solutions? Will Greenlight have sufficient assets to perform this solution? Will it have a positive, long-term benefit?
- 10. A Four-Year Asset Acquisition Market Research Strategic Alternatives Implementation Process Company Impact We propose purchasing the assets of RubberUp, paying over a four year period, for a total of $2,800,000 (or four payments of $700,000) Through a marketing campaign, Greenlight can rebrand themselves as a green company through “GreenUp with Greenlight” The RubberUp employees should be brought on as contractors during a four year period to transition to management
- 11. Vertical Integration Results of Acquisition Acquiring RubberUp, a profitable recycling company, has myriad benefits. Market Research Strategic Alternatives Implementation Process Company Impact Improved Company Reputation Environmental Culture Change Position Company for Growth Short & Long-Term Financial Benefits Provides Employment Advancement
- 12. Vertical Integration of RubberUp Greenlight and RubberUp will both lower their operational costs through this acquisition. Market Research Strategic Alternatives Implementation Process Company Impact RubberUp Factory Greenlight supplies used tires, lowering operational costs RubberUp’s processes continue to produce and sell recycled rubber for playgrounds Through Vertical Integration, RubberUp’s operating costs will decline, driving up profits. Greenlight will also be able to turn a cost (tire disposal) into a revenue stream (recycled rubber)
- 13. Timeline of Conversion Process A four-year buyout model will mutually benefit both companies’ bottom lines. Market Research Strategic Alternatives Implementation Process Company Impact 2017 $700,000 2018 $700,000 2020$700,000 2019$700,000 The four-year Return on Investment model projects a stronger, more positive return compared to an initial payment model due to the Time Value of Money. Paying over a four-year period will result in a significant decrease in the payback period (4.5 years to .875 years) based on our earnings model of $800,000 annually.
- 14. Tax Implications PWC would be able to assist Greenlight in this transaction due to the many different tax benefits available. Market Research Strategic Alternatives Implementation Process Company Impact Depreciation Incentive Programs Tax Credits Purchasing RubberUp’s assets allows Greenlight to immediately begin depreciation on these assets Mississippi Tax law contains a 5% discount on any $1,000,000 investment on buildings or equipment used for manufacturing There are many different business incentive programs through the Department of Energy for green investments
- 15. Pro Forma Impact We estimated a one-year impact on the Financial Statements to map the change in the company going forward. Market Research Strategic Alternatives Implementation Process Company Impact 2017 (First Full Year)2015 (Last Year) Percent Change Net Sales 28,865.60 Net Income 4,023.30 Total Assets 17,624.30 Tot. Liabilities 11,553.70 Total Equity 6,070.60 ROE .66 Current Ratio 2.66 ROA 0.23 Net Sales 36,582.91 Net Income 6,125.55 Total Assets 20,684.28 Tot. Liabilities 13,113.68 Total Equity 7,570.60 ROE 0.81 Current Ratio 2.66 ROA 0.23 Net Sales 126.74% Net Income 152.25% Total Assets 117.36% Tot. Liabilities 113.50% Total Equity 124.71% ROE 122.09% Current Ratio 83.11% ROA 129.73%
- 16. Risk Mitigation We evaluated potential risks and ramifications to our solution, and proactive resolutions. Risks Entity/RubberUp may have potential legal/image issues Greenlight may face hefty fines, and if they contest the charges, may face backlash Greenlight’s public image will not have any effect. Ramifications The negative image of RubberUp becomes a Greenlight liability The positive image effects of the acquisition will be confounded, and the company will have a large payout Greenlight will have taken an unnecessary risk Solutions Asset Purchase instead of Entity Purchase Partnership with Louisiana public officials to dispose of their tires free of charge, and use rubber in public areas throughout state Rebranding: GreenUp with Greenlight
- 17. We would be happy to answer any questions that you may have at this time. Thanks!
- 18. Appendix: State Department The State of Louisiana may still fine Greenlight a large amount. We recommend a quick court settlement and an act of good faith in free tire disposal for all state officials in the state of Louisiana. All of the rubber from these tires will be used in public parks around the State of Louisiana. This will have a lasting positive effect on the communities in Louisiana.
- 19. Appendix: Vertical Integration Rubber Recycling Market Recycled Product Consumer (Playground Suppliers) Recycling Company (RubberUp) Rubber Producer (Greenlight) Vertical Integration applies to Greenlight as it integrates the assets of RubberUp into their corporate structure. Greenlight acquires an internal customer for their defected and recycled tires, and RubberUp acquires an internal tire supplier for their recycling business. Vertical Integration allows Greenlight to obtain a profitability advantage in the rubber recycling industry
- 20. Appendix: Rebranding Greenlight Because of the drastic image change Greenlight Tires is pursuing, developing a communications strategy involving a rebrand would be beneficial. We recommend “GreenUp with Greenlight” to drive home the idea that Greenlight Tires is an eco-friendly company. The BYU football team, desperate for a rebrand from the gold-lined BYU jerseys that made just one bowl appearance, has appeared in a bowl game ever since their revert to the traditional colors. This change is to be seen as a communications/marketing change rather than a structural corporate change.
- 21. Appendix: RubberUp Financial Ratios
- 22. Appendix: Discounted Cash Flow Valuation
- 23. Appendix: Discounted Cash Flow Values
- 24. Appendix: DCF Assumptions ● WACC based on the five year average the S&P Index ● Cash flows will grow at an estimated 2.4% each year with the market growth of the rubber industry
- 25. Appendix: Payout over a one-time purchase Payback as a one-time, 2.8m hit
- 26. Appendix: Payout over a 4-year model
- 27. Appendix: Rubber Recycling Industry Stats
- 28. Appendix: Rubber Recycling Industry Stats
- 29. Appendix: Rubber Recycling Industry Stats
- 30. Appendix: How Can PWC Help? ● Tax Planning ● Audit and Assurance ● Advisory ● RubberUp may have a different internal structure. PWC can help there, implementing the same information system for the two companies. ● What should the company do with the legal battle (Developing a 4 year model that can bear the punishment and support the RubberUp investment) ● Transaction evaluation groups that can help determine more proper and beneficial values during the acquisition and integration.
- 31. Appendix: Details of Acquisition Proposal We recommend a four-year asset acquisition deal with four payments of $700,000, paid annually from 01/2017 until 01/2020. The total payout will be $2.8 million Part of the deal should include a four year contract with all RubberUp employees to bring all employees into Greenlight as contractors. The management of RubberUp should be phased out over the four-year period. This will allow time to incorporate, operate and train key employees as the obligations transfer to Greenlight management. After those four years, we recommend a non-compete clause lasting from 2021-2024, prohibiting the owners of RubberUp to open a competing business. Doing this will protect Greenlight from the risk of losing all RubberUp customers after the merger’s completion.
- 32. Appendix: Timeline and Tax Benefits Greenlight will benefit from a lower initial bottom-line hit, while adding a new revenue stream. They will also benefit from the gradual integration and transition to internal management. From a tax perspective, Greenlight benefits by immediate depreciation of RubberUp’s assets. RubberUp owners can easily transition into retirement over the four years through working as contractors for Greenlight until the transition completes, while receiving four annual lump sums. - Federal depreciation allowance: a 50% depreciation allowance may be taken for equipment and machinery used for recycling, during the first year in which the property is in service. - Manufacturing Investment Tax Credit (An income tax credit is available equal to five percent (5%) of the eligible investment made by manufacturers that have been in business in Mississippi for more than two (2) years. An eligible investment means an investment greater than one million dollars ($1,000,000) in buildings and/or equipment used in the manufacturing operation) - Incentives from department of energy: There are business incentive programs, and they are listed on www.energy.gov
- 33. Appendix: Pro Forma Financial Statements % Change 31-Dec-2017 31-Dec-2015 Net Sales 126.74% 36,582.91 28,865.60 COGS 120.58% (21,949.75) (18,204.00) SG&A 105.00% (3,553.73) (3,384.50) R&D 150.00% (1,400.70) (933.80) Other I/E 0.00% 0.00 1.60 Operating Income 152.54% 9,678.74 6,344.90 Interest Expense 100.00% (32.20) (32.20) Earnings B4 Tax 152.81% 9,646.54 6,312.70 Income Tax 153.80% (3,520.99) (2,289.40) Net Income 152.25% 6,125.55 4,023.30
- 34. Appendix: Pro Forma Financial Statements Ratios Change 2017 2015 ROE 122.09% 0.81 0.66 Return on Sales 120.13% 0.17 0.14 Asset Turnover 107.99% 1.77 1.64 Leverage Ratio 94.11% 2.73 2.90 Current Ratio 83.11% 2.21 2.66 Debt Ratio 96.71% 0.63 0.66 Debt to Equity 91.01% 1.73 1.90 Return on Assets 129.73% 0.30 0.23
- 35. Appendix: Source List ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ www.recycledrubber.biz ○ http://www.rubber.com/rubber/trade/cm194373.html ○ http://www.groundrubbersolutions.com/ ○